Stop the pain of payroll
Is your company struggling to streamline your payroll operations? Have you been assessed penalties by regulatory authorities for payroll tax or compliance mistakes? If so, never fear. Help is here! The tips below will help you identify the most common pain points of payroll and rectify them before you (or your employees) experience negative consequences as a result.
Avoid missing tax form submissions
As an employer, you’re responsible for taking out the appropriate payroll tax amount for each employee. However, this is one of the most common areas where businesses falter as they miss deadlines or forget to submit tax paperwork.
You must complete Form 940, Form 941, W-2s and 1099s for each employee and third-party contractor. The IRS can slap your business with hefty fines and/or penalties for missing deadlines or failing to submit your payroll forms.
Another common pain point when filing these payroll tax returns is the timing. As a business owner, you must remember which forms to file and when. For example, you must file Form 941 on a quarterly basis, while Form 940 and W-2s require once-a-year submission.
W-2s and 1099 forms are for year-end tax reporting. You must submit these forms for each contractor paid more than $600 and each employee who works for you.
Don’t misclassify employees
If your company hires a mix of temporary, permanent, consultant and contracted employees, you must determine the correct classification for every single person working in your company. This will help you report the right payroll information and tax documents for each employee.
For example, the Fair Labor Standards Act (FLSA) offers protections and benefits such as minimum wages and overtime pay for most employees. These are considered non-exempt employees. Independently contracted employees don’t have access to these benefits, so they’re known as exempt employees.
You must classify each of your employees as exempt or non-exempt. Misclassification can deprive them of the benefits and wages they deserve. Most importantly, you may be penalized by the government for overpayment or underpayment due to this payroll error.
Be careful not to miscalculate overtime
While you may know that overtime pay is 1.5 times an employee’s regular rate, don’t make the classic mistake of forgetting to include other forms of benefits, compensations, bonuses and commissions when calculating overtime rates. Overtime pay errors can result in fines and back pay. Moreover, you may find your business facing legal actions for underpaying your staff.
Don’t miss tax deposit deadlines
This is as important as filing your tax return: Don’t forget to make your payroll tax deposits, such as Federal Insurance Contributions Act (FICA) taxes, FUTA (Federal Unemployment Tax Act) taxes, or any other income taxes. Remember, you must deposit income tax and FICA taxes on a semi-weekly or monthly basis. In order to avoid this error, you can set up an online payment schedule on the Electronic Federal Tax Payment System (EFTPS).
Make sure you tax employee benefits correctly
Certain benefits are taxable; these are known as fringe benefits. Your business is responsible for withholding appropriate taxes from each paycheck of every eligible employee. To get this right, you must familiarize yourself with every employee benefit your business offers and apply the right taxation code. This is where consulting with a payroll tax professional can really be beneficial, to avoid employee and taxation issues down the road.
Ensure that you report new hires and related paperwork
Whenever you hire a new employee, it’s your responsibility as an employer to complete the W-4 and I-9 forms. The former is for compliance with the taxation code, and the latter determines the employment classification eligibility of the job applicant. Ask each new hire to complete both forms and update your payroll system once you have all the information you need.
You’ll be surprised that many employers forget to follow this procedure partially or completely. If you’re found to have not abided by this requirement, you may be subject to serious payroll compliance issues, which could mean legal problems, fines and penalties.
Maintain accurate and complete payroll records
Did you know your responsibility as an employer for payroll doesn’t end when you submit payroll tax information? Failing to maintain adequate payroll and taxation records can create major issues for your organization. For example, if your state tax department or the IRS requests your payroll records and you fail to produce them, you may be subject to fines or even an audit. Therefore, it’s a must to maintain full payroll records for all current employees. The IRS recommends retaining all payroll records and summaries for seven years. They also recommend a seven-year retention period for personnel files for terminated employees.
Key payroll takeaways
Payroll is one of the most critical operations of any business—and frequently one of the largest expenses. It can also define the relationship you have with your workforce. That’s why it’s imperative to avoid the mistakes and adhere to the requirements outlined above to mitigate the risk of potential penalties and fines. After all, you have so many better things to do with your time than deal with the pain of payroll.Back to issue